Attorneys for theme park operator Six Flags Inc. and a group of its noteholders squared off in Delaware bankruptcy court Friday over the company's proposed Chapter 11 reorganization plan.
After listening to a full day of testimony from Six Flags chief financial officer Jeffrey Speed, Judge Christopher Sontchi adjourned the hearing until Monday, when he will hear arguments on whether to extend the time during which Six Flags has exclusive rights to file and solicit votes for its reorganization plan.
Holders of more than $500 million in junior notes issued by Six Flags Inc. claim they have come up with a better plan that would increase the recovery for creditors. They contend that the company should not be granted more time to complete a plan that gives preferential treatment to senior noteholders but a relative pittance to their group.
Speed said consideration of the alternative plan will result in delay that negatively affects Six Flags, which wants to exit bankruptcy by the end of the year and enter the summer travel season "without the taint of bankruptcy hanging over us."
"That taint is not helpful to attracting customers," he said.
Six Flags, which owns 20 amusement parks in the U.S. and other countries, sought bankruptcy protection in June, burdened by high debt and declining park attendance by economically strapped consumers.
After months of discussions with debt holders and secured lenders, Six Flags dumped its initial proposal for a debt-to-equity swap giving secured lenders 92 percent of the reorganized company's common stock and allowing bonuses for top executives of up to $30 million upon emergence from bankruptcy.
Under its revised plan, lenders would be paid in full, holders of senior notes would receive about 25 percent of the reorganized company's common stock, and rights to purchase an additional 70 percent. Holders of junior notes who are challenging the company's restructuring plan would receive only about 5 percent of the new common stock.
J. Christopher Shore, an attorney for the junior noteholders, suggested that Six Flags officials dismissed the group's competing restructuring plan without even presenting it to the board.
Speed admitted that no meeting was called to discuss the proposal because attorneys and advisers said there was nothing concrete to present to the board.
"It's really not even a proposal; it's a piece of paper," Six Flags attorney Paul Harner said at the start of Friday's hearing. "It can't conceivably be a basis for delaying this process."
"The termination of exclusivity would throw these cases into substantial disarray," added Harner, who questioned the timing of the noteholders' proposal, submitted to the company late in the day on the Wednesday before Thanksgiving and giving Six Flags just two business days to respond.
The noteholders contend that under their plan, lenders would get full recovery in cash or reinstatement of their debt, and holders of senior notes issued by Six Flags Operations Inc., a subsidiary of the parent company, would be paid in cash instead of stock, using proceeds from a $420 million rights offering.
The judge's ruling on whether to grant Six Flags more time or allow consideration of the noteholders plan likely will influence his decisions on other pending motions, including whether to authorize Six Flags to enter into financing arrangement and approve the disclosure statement for its reorganization plan, which would pave the way for the company to begin soliciting votes from creditors.